It was central bank day yesterday and while the BoJ, ECB and BoE all stood pat the reactions on FX markets and sentiment toward the future path of monetary policy couldn’t have been more stark.
In Asia the BoJ stood pat, left its current program the same yet the Yen sold off making a new high for this run overnight at 85.06. Given it was BoJ Governor Masaaki Shirikawa’s last meeting before the new Governor takes charge there was no real expectation of change and he did warn that the Government and the BoJ need to have discipline but the market’s eyes are on the new Government’s plans for aggressive easing and their implement of this the new Governor Haruhiko Kuroda.
USDJPY has now made a new high for this run and it does indeed look like its recent pause may have been a set up for a run higher. There is now a vacuum of expectation over the next couple of weeks while Shirakaw finishes his tenure and Kuroda gets his feet under the desk. This is a time where there is little reason to sell USDJPY from the Japanese side of the cross so it is only for the US economic recovery to derail the rally.
Turning to Europe and the Euro there was nothing in Draghi’s press conference that gave any indication that he is connected to the troubles of the European population although he did throw a bone to those who want more easing and less Euro strength when he revealed some of the internal dissent about the decision to leave rates on hold and that a cut had been considered. He held the line that even though growth forecasts had been downgraded he was still positive for the second half of the year as European politicians and ECB Governors have been for a few years now. But interestingly, in the context of the Euro’s big rally to a high of 1.3118 this morning, Draghi’s comments have been interpreted by many analysts as fairly dovish.
Yesterday we said that while the Euro was above 1.2970 it was holding in. The low was actually 1.2964 over the past 24 hours so the recovery has been spectacular as you can see in the chart above. It looks like the biggest 1 day rally since Early January but equally as you can see in the chart above the Euro hasn’t even managed to get back to the fast moving average yet. So it is still in a downtrend. Having said that though the way the set up of our usual indicators looks is that Euro could rally toward 1.3200/15.
In the UK the BoE stood pat also but an article on the front page of the FT in the UK claiming that Chancellor of the Exchequer George Osborne is going to give the incoming BoE governor Carney his head by changing the Banks mandate is likely to have been part of the reason for Sterling’s acute weakness early in the UK day and why it’s rally has been an aborted one leaving GBPUSD basically unchanged on the day.
We are on record as saying that in time we think the GBPUSD rate is headed toward 1.42 eventually but there is room for a rally sometime soon because Carney is a central banker of some repute, It was his idea the Fed borrowed when it declared a time bound monetary easing and in many ways he has been the Central Bank leader of most note over the past few years. So yes Osborne can change the mandate and yes Carney can use his toolkit to try to fix Britain but in the end he is still a central banker and he will not want to destroy centuries of respect that the BoE has built up nor threaten his own reputation by doing anything that we might call “silly”.
Looking at the Aussie it was dragged higher by the Euro continuing its fractured trade within the 1.01/1.03 box making a high of 1.03 overnight before pulling back to 1.0273 at the moment. Yesterday we said the Aussie was biased back to 1.0215 and the low of the last 24 hours was 16. On the hourly charts the Aussie looked like it was mapping out a nice head and shoulder pattern and we sold some in the 1.0240 region yesterday afternoon. That didn’t work out so well as you can see in the chart below.
The Aussie is above our fast moving average, the middle of the Bollinger Bands and a push through the top of the Box and or the slow moving average at 1.0312 would suggest that a base has been formed for the minute. We’ll see how it plays out.
Looking at the stock market the Dow made another new intraday all time high at 14355 and with about 15 minutes to go before the close is sitting up 31 points at 14326. The Nasdaq is up 0.33% and the S&P is up 4 points or 0.23%. Jobless claims fell again overnight for the past week which is more good news for stocks and for the moment while stocks are up it seems that the bid is going out of the USD a little – but it is still our contention that the divergence of the economic performance of the US and most nations will in the end continue to strengthen the US dollar.
In Europe markets were stronger in the early part of the day before pulling back a little but in the end the FTSE was up 0.18%, the DAX rose 0.26%, the CAC climbed 0.54%. In Milan and Madrid stocks rose 0.30% and 0.36% respectively.
On commodity markets Nymex crude rose 1.24% to $91.55 Bbl. Gold and Silver were largely unchanged at $1,574 and $28.73 oz. respectively. Copper rose 0.72% and the Ags were higher with wheat up 1.55%, soybeans up 1.28% and corn up 0.49%.
Non-farm payrolls is the big one over the next day of trade and the market is looking for a rise of 160,000 and an unemployment rate of 7.9%. But before that we get some important data from other nations. In Japan GDP and trade will be released and in China we will see trade data also. In Germany industrial production will be released. Over the weekend Chinese CPI, PPI, IP and retail sales will be announced.